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The Beltway's Destructive Obsession with the Deficit

Yesterday afternoon at the National Press Club (the standard Washington venue for events that need a little class), the Committee for a Responsible Federal Budget—a bipartisan debt-reduction group—rolled out its “Fix the Debt” campaign, an attempt to push deficit reduction to the top of the congressional priority list. It's hard to overstate the extent to which this was an almost stereotypical gathering of Beltway deficit scolds. The event featured Pete Peterson—businessman and former Commerce secretary in the Nixon administration—who funds the Committee, as well as members of the Bowles-Simpson fiscal committee—including the titular Erksine Bowles and Alan Simpson—along with former New Hampshire senator Judd Gregg, former Pennsylvania governor Ed Rendell, and former OMB director Alice Rivlin.

Despite the subject, policy recommendations were not the focus of this event; at most, the panelists praised Bowles-Simpson for its “boldness,” and repeatedly described it as a plan to put the country on the right track. Instead, the bulk of the conversation was devoted to hyperventilating over the threat of the federal debt, and indulging the centrist conceit that both parties are responsible for the impasse in Congress. For the attendees, who filled the room and the overflow section, this was catnip.

“While Washington is embroiled in ideological, and near-theological, combat over low revenues and no entitlement cuts, the public wants compromise,” said Peterson, giving his take on the challenges of passing a deficit reduction package. This was followed by Honeywell CEO Dave Cote, who declared, “We can’t continue to revel in discordant pluralism,” as if there were something problematic with democratic decision-making. Simpson had a lighter touch, though it came with a bit of Beltway resignation over the pain of “necessary” cuts to entitlements and other programs for ordinary people. “Understand that the problems are real," he said, "and the solutions will be painful.”

The astounding thing about this entire show was the extent to which unemployment went unmentioned. Each panelist spoke about how economic growth was paramount, but none seemed aware of the country’s employment crisis. Indeed, listening to the panelists, you wouldn’t know that 12.7 million Americans are unemployed, and that millions more have dropped out of the workforce altogether. At most, you had fact-free statements about how debt reduction was a necessary precondition to economic expansion. “Fixing the debt and growing the economy are tied together,” said Alice Rivlin. “We can’t grow the economy without fixing the debt.”

Of course, this isn't true: As we saw to a limited extent with the stimulus, you can improve the economy by taking on debt, as long as that debt is used to finance consumer spending. A second, $1 trillion spending program would increase the debt, but would do more for jumpstarting the economy than any agreement on long-term budgets.

This isn't hard to see. But in the Beltway, among the permanent establishment, there is a dangerous myopia that leads to the conclusion that our short-term budget deficit—and a hypothetical, long-term debt problem—is the greatest threat to our continued economic health. Indeed, this is believed so strongly that disagreement is dismissed with dogmatic certainty, and contradictory facts are ignored; the market’s ongoing confidence in U.S. debt, for one, often goes unmentioned in these discussions.

This also goes for the most important reality of today's Washington—the extent to which congressional dysfunction is a Republican problem more than anything. The GOP has adopted a categorical opposition to upper-income tax increases, despite the fact that the wealthy have seen the vast majority of income gains over the last decade. Democrats, by contrast, have shown their willingness to sign on to a “grand bargain,” to say nothing of the Affordable Care Act, which continues to stand—unheralded—as the most significant debt reduction measure since Bill Clinton’s 1993 budget bill[1].

It would be one thing if this group were pushing for long-term debt reduction and short-term economic relief. The centerpiece of President Obama's economic plan is the American Jobs Act, which calls for hundreds of billions in new stimulus, to jumpstart the economy. This would necessarily add to the deficit, but the gains from employing people—1 million additional workers, over the next year—would more than make up for the additional debt. Different sides might disagree about the best way to accomplish the long-term goal of reducing the debt, but focusing on short-term economic improvement is clearly the right thing to do.

Instead, these self-styled masters of consensus are entirely focused on reducing the deficit now. In the current economic environment—where demand is still lagging—this is a guarantee of disaster.

It’s worth noting that, during the 111th Congress, Gregg was an avowed opponent of the Affordable Care Act, despite his constant posturing on the deficit. ↩

Comments

I agree completely. Or, I did up until a day or two ago. Now, all of a suden, the big worry is the "Fiscal Cliff". Ironically, the Fiscal Cliff is a Keynesian problem. If we go over the Fiscal Cliff, all of our deficit problems will go away. But Washington insiders now consider this a bad thing.

I think it is time to fully realize the chattering class is Washington is made up of complete and total idiots, who just follow each other's lead and try not to embarrass themselves by standing out of the crowd (too much -- just enough to be famous).

Republicans always criticize Democrats for thinking that tax hikes reduce deficits dollar for dollar, and point out that they don't, since economic activity slows from the increased tax burden, and the revenues are reduced accordingly. But they never recognize that the same consideration holds for spending cuts. They never cut deficits dollar for dollar either, because economic activity slows as government spending is cut. However wasteful, evil, or unproductive you may think that spending is, some of it goes into the economy, and stimulates it. If it doesn't, revenues suffer, and the deficit increases.

"The centerpiece of President Obama's economic plan is the American Jobs Act, which calls for hundreds of billions in new stimulus, to jumpstart the economy."

Which proves why the centerpiece of Obama's Job's Act is economically stupid. Obama continues to tout more jobs for infrastructure, teachers, police, etc., All great things! All things that don't create wealth and the more your spend, have terrible return on investment

Infrastructure has a horrible rate of return on investment. This may come as a shocker Obama, but America is no longer an agrarian society with two large metropolitian areas denied the ability to conduct commerce for lack of a bridge. Bridges are a necessary expense in wealth creation, they don't however, create wealth by building more. More bridges, just cost more.

Highways are a horrible rate of return on investment. Bob has a 2 hour commute each way to GE to build windmills. The gov't spends $50 billion in a high speed rail 20 lane air tube that cuts his commute to 1 minute. How much more does Bob Produce each day. $0. Bob produces the same amount between 8-5pm no matter how long it takes Bob to get there. More Highways, just cost more.

Teachers are a necessary expense in wealth creation as a skilled work force is key. Absolutely no doubt. But put 2 teachers in a classroom and the kids won't learn twice as much, or become twice as productive. Put 30 teachers in a classroom and it only costs 30 times more. Teachers are an expense with an ever decreasing rate of return. 1 is necessary, more may be preferable, but it doesn't result in wealth creation, they just cost more.

Police and Fireman are great, we all love them, need them, I wish my town had 100 more. But my affection for them doesn't make them wealth creators. At best, their risk managers. More police, less crime, theoretically less cost (I'm ignoring the cost of trying and housing them). The more crime they stop, the less financial gain is avaibable to decrease the loss by hiring mroe. They don't create wealth, they can only decrease loss. They're an expense.

Obama, and all the liberal lefty lemming loons that keep pushing this nonsense only prove their complete lack of understanding economic success. Which is why our current economic demise under Obama is self-evident.

"Which proves why the centerpiece of Obama's Job's Act is economically stupid. Obama continues to tout more jobs for infrastructure, teachers, police, etc., All great things! All things that don't create wealth and the more your spend, have terrible return on investment."

What exactly does "create wealth" mean? Create wealth for who? It is a nebulous concept which proves the point of the article. The idea behind rebuilding infrastructure, besides not having bridges fall down and providing higher quality education, is to create useful ("great", even) things while providing employment to the middle class. The whole driving force behind Obama's plan is to support the middle class. Because, to have a successful democracy and thriving economy where people have opportunity to create wealth, you need a middle class. Otherwise, who are the rich going to get richer from? I really don't understand the disdain the well-off have for the "money-grubbing" middle class when they wouldn't exist without them.

It is also well proven that the biggest return on the dollar, if your goal is economic stimulus, is on the poor and middle class. Because if you don't have piles of money already lying around, you are more likely to spend it. Common sense. As opposed to abstract ideals of "economic growth" benefiting only those who probably aren't going to spend on goods and services.

Tom, while more cops, if they are allowed to do the jobs for which they were hired, do often reduce crime rates, nothing reduces violent crime like an armed citizenry. It is no coincidence that the cities with the highest rates of gun violence also have the most restrictive gun ownership laws. Law abiding citizens do not as a rule commit violent crimes and preventing them from defending themselves does nothing to discourage crimes, violent or otherwise. I don't remember who said it but I believe it to be true that an armed society is essentially a peaceful, lawful society.

At least when government respects the right of citizens to defend themselves. Unfortunately most governments are despotic to at least some extent and therefore fear an armed populace that might one day tire of governments heavy hand. No matter what you might read or hear to the contrary efforts to prevent the common citizen from arming himself have nothing to do with protecting us from criminals and everything to do with protecting criminal governments from their citizens.

The US can reduce its deficit fairly easily because our income taxes are far too low. From 1945 to 1980 income taxes averaged near 12% of GDP. Reagan reduced marginal tax rates so much that they fell close to 9%. Clinton increase them back to 12%; and Bush/Obama reduced them again to 9 %(and below). However, on budget expenses have remained 12%(+/-1%)) of normalized GDP throughout. The deficit in income taxes has been financed by borrowing, largely from the Social Security trust fund. But, not only can we no longer continue to borrow from the trust funds, we have to start paying money back as beneficiaries start relying on the trust funds. In the short term, we have to raise income taxes to 12%, simply to cover on budget expenses. In the long term, income taxes must rise above 12% in order to pay back the trust funds.

The federal government alone has borrowed an unprecedented $5 trillion in the 3½ years since President Obama took office. If borrowing ourselves into oblivion was going to kick-start the economy, it would have done so long ago. In fact, we wouldn't have had a recession in the first place. Even if that were not the case, it would be the height of selfishness to try and saddle our great-grandchildren with enormous future interest payments in order to purchase "short-term economic improvement." That kind of short-sighted thinking is what we deplore in our corporate chieftains; we should not tolerate it in a government of, by, and for the people.

What a joke. Washington is obsessed with many things. However, the deficit isn't one of them. Indeed, the ever rising crescendo about the "fiscal cliff" amounts amounts to a paralyzing fear that the deficit might actually go down. That's the exact opposite of what the author claims.

However, there is a deeper point. No one really cases about the unemployed or least they are always the second, third, or fourth priority.

If unemployment was really a concern, would America really be running a $550+ billion trade deficit without a word of protest? If unemployment was anyone's priority, would we be admitting 1 million immigrants a year to take jobs from Americans? Would we tolerate the 11 million illegals we already have rather than sending them home?

Should I even mention the Keystone pipeline?

No one in power really cares much about the unemployed. Promoting globalization is always "job one" (ask Obama) and those out of work should be thankful for whatever scraps they get.

"The centerpiece of President Obama's economic plan is the American Jobs Act, which calls for hundreds of billions in new stimulus, to jumpstart the economy. This would necessarily add to the deficit, but the gains from employing people—1 million additional workers, over the next year-would more than make up for the additional debt."
What's the taspayer's cost to get a new worker? Let's do a little calculation. Hmmmm...that's possibly $200,000 per additional worker. Same as the last 'stimulus'. No thanks, I'll keep the cash!

The previous stim was enough to give EVERY unemployed person a check for $60k and let them try to start a small business. At $200k per job, unemployment would have dropped like a rock. For unemployment to go up, the stim had to be amazingly inefficient, a million a job, two million a job, something like that.

Bill: "It depends on what the meaning of the words 'is' is."
Mitt: It depends on what the meaning of the words 'employed' is.
The Blue Dress is Mitt's Tax Returns
No stain, no pain
Can a person be impeached before he is elected
This question is Mitt's Bain in the A$$.

A major contributing cause of the Financial Crisis of 2008 was the filing of false or misleading documents with the SEC. This is no small matter, since 2009 the SEC has collected fines of over 3 Billion dollars for this; from financial institutions such as, among others: Bank of America, Goldman Sachs, Citigroup, Merrill Lynch, Credit Suisse, J.P. Morgan, Wachovia Bank, and UBS. Even if Mitt Romney actually left all operational control of Bain Capital in 1999, he sanctioned and acquiesced to the filing of false and misleading documents with the SEC until 2002. While this violation may not rise to the level of these other institutions, it does indicate a certain attitude towards these filings. The complete and truthful disclosure of all facts is not important. This was an attitude all too prevalent in the financial community prior to 2009, and all of us paid the cost.

Is full disclosure to the SEC one of the regulations Mitt would do away with? What about other regulations regarding the financial community; Wall Street and the banks too big to fail? If you put a fox in charge of the chicken coop, you have a problem for the chickens. Will Mitt's election be the equivalent of that for the small investor? As a life-long Republican, small investor, and small businessman, I can not take that chance; I have been burnt once by a government that did not believe in regulation, and was asleep at the wheel. The sad thing is that Bain was first brought up by a candidate who wanted to colonize the moon, and the false filing was never mentioned. If this was discovered earlier, I would not have supported Mitt in the primaries and we would have a different candidate. Perjury is perjury. It was ethically and morally equal to saying "I never had sex with that woman" only worse since it was related to a public institution, not sex; and there could be no equivocation since the two official documents Mitt signed exactly contradict each other 100%. He can not flip-flop between these two documents. The only way he can extract himself from this hole is release the 12 years of tax returns, as his father did, and thereby prove he received no direct benefit from Bain after 2000.

Bill: "It depends on what the meaning of the words 'is' is."
Mitt: It depends on what the meaning of the words 'employed' is.
The Blue Dress is Mitt's Tax Returns
No stain, no pain
Can a person be impeached before he is elected
This question is Mitt's Bain in the A$$.

A major contributing cause of the Financial Crisis of 2008 was the filing of false or misleading documents with the SEC. This is no small matter, since 2009 the SEC has collected fines of over 3 Billion dollars for this; from financial institutions such as, among others: Bank of America, Goldman Sachs, Citigroup, Merrill Lynch, Credit Suisse, J.P. Morgan, Wachovia Bank, and UBS. Even if Mitt Romney actually left all operational control of Bain Capital in 1999, he sanctioned and acquiesced to the filing of false and misleading documents with the SEC until 2002. While this violation may not rise to the level of these other institutions, it does indicate a certain attitude towards these filings. The complete and truthful disclosure of all facts is not important. This was an attitude all too prevalent in the financial community prior to 2009, and all of us paid the cost.

Is full disclosure to the SEC one of the regulations Mitt would do away with? What about other regulations regarding the financial community; Wall Street and the banks too big to fail? If you put a fox in charge of the chicken coop, you have a problem for the chickens. Will Mitt's election be the equivalent of that for the small investor? As a life-long Republican, small investor, and small businessman, I can not take that chance; I have been burnt once by a government that did not believe in regulation, and was asleep at the wheel. The sad thing is that Bain was first brought up by a candidate who wanted to colonize the moon, and the false filing was never mentioned. If this was discovered earlier, I would not have supported Mitt in the primaries and we would have a different candidate. Perjury is perjury. It was ethically and morally equal to saying "I never had sex with that woman" only worse since it was related to a public institution, not sex; and there could be no equivocation since the two official documents Mitt signed exactly contradict each other 100%. He can not flip-flop between these two documents. The only way he can extract himself from this hole is release the 12 years of tax returns, as his father did, and thereby prove he received no direct benefit from Bain after 2000.

Hypothetical debt crisis? Each American owes more than the Greeks or the Spanish. THE country is bankrupt. The debt will never be paid. It will either be repudiated, or the government will debase the currency until it;s worthless, and then write off teh debt. The left knows this, which is why you see articles about the deficit / dent doesn't matter. If it doesn't matter, then why not cut spending to match revenues?

Yes, hypothetical debt crisis.
The country is not bankrupt. That's because nations don't go bankrupt.
The nation has no problem finding people to buy bonds. Until we reach a point when the United States has to pay a higher rate for T-bills, it is simply dishonest to claim that the US is in a debt crisis.
OK, I'll give you credit. Maybe you're simply ignorant and not dishonest.
You know who said "Deficits don't matter"??? Dick Cheney. One of those "leftists", eh? The truth is that conservatives only care about deficits when it comes to spending money on things that Democrats want. President Bush and a Republican Congress took the Clinton-era surplus and created the current deficit situation through a combination of tax cuts and spending increases, both domestically and with the wars in the Middle East. If you actually cared about the deficit, you should have protested those tax cuts.

Worried about the national debt? The situation’s zany. Last summer Republicans and Democrats together excavated this “fiscal cliff” they are now yammering about. It looks zany, like automatic “austeri-terrorism.” Since that debt deal the House has voted 33 times to cripple Obamacare, the Senate and President not concurring even once. Meantime, we hurtle toward this ski mogul - like, concoction. None of them know how high it may be. How about repealing that debt deal? Instead, Congress could bypass the Federal Reserve, and lift the economy by creating a couple trillion dollars in United States Notes (USN’s.) USN’s are government – originated legal tender created without debt. Our current Federal Reserve Note (FRN’s) quantity is limited by private banks. Banks earn relatively high interest every time we have to borrow “their” FRN’s.
United States Notes could be spent to replace cut FRN dollars. Very low interest, long term loans of USN’s to mortgagors (direct deposited to mortgagees) could support housing asset values. USN’s could be credited to Social Security and Medicare to make up unfunded liabilities. They could be loaned to individual entrepreneurs and genuine family capitalist small businesses. They could be used to create millions of jobs. Our jobless can’t all operate earth movers or computers. But millions can engage in paid, highly needed, low tool use human services jobs.
Inflation? The Panic of 2008 started severe deflation. Only controlled, targeted reflation can counteract it. USN’s saved our nation twice, in the Revolution and Civil Wars. Lack of them facilitated the Panic of 1929 becoming the Great Depression of ’29 – ‘39. Mega-banks hate USN’s. They’ll send a thousand “Liars for Lucre” economists to argue against them. We would need to push the idea until government can’t ignore it any more.

Reaganomics which held that deficits didn't matter is much too deliberate to be the product of an idiot. We have had decades of irresponsible VooDoo economics which has long been proven to be unsound. Add to that the constant state of war over decades and "voila" a massive deficit. How can you wage wars that cost trillions of dollars and not fund them through revenues? This isn't economics it is the incorporation of war for the benefit of the Military Industrial Complex.

With Reaganomics, it's not just that deficits don't matter. The Reagan strategy was to deliberately run them in order to run up the national debt to a level which would give Conservatives the opportunity they had been waiting for since the 1930s to destroy the social safety net in its every form. That's why 2012 is "make or break" for Conservatives. This is either the year they will claim the victory Reagan won, or they will lose the opportunity to do so.

Jamelle, a deficit that comprises a vanishingly small percentage of GDP or is needed temporarily to meet a national emergency, like defeating the Soviets rather than playing tit-for-tat with them, is of far less importance that one amassed by social programs from which there is no relief or comprises an ever growing percentage of GDP and neither shrinks nor even steadies over decades is and entirely different matter. The deficit that we face today cannot be simply shunted aside as a normal cost of government. Its very existence threatens our children and their children, as someone once said, unto the seventh generation. Unless congress can be forced to reduce spending, even eliminate whole budgets, the economic end of America is certain, along with the individual liberty that depends upon economic liberty. So long as our governments, especially our federal government which was intended to be the least powerful of all, continue to assume athority over and responsibility for our lives we are on a path to dependency and poverty. Illustrations of that fact abound throughout the world and are clear to those, like Thomas Sowell and others, are willing to look.